Defending the move by the BRICS nations — Brazil, Russia, India, China and South Africa — to set up a bank, China said the developing world had been left with few options, stressing the need for governments to allocate the initial seed money for the initiative.
Growing Chinese concerns about fluctuations in the U.S. dollar and a fresh drive to promote cross-border settlements in the Renminbi were behind Beijing's renewed interest in pushing forward the move, according to officials in Beijing.
If Beijing had its way, after leaders of the five countries approve the pacts for local currency trade and the bank on Thursday, the idea could be forwarded to other emerging countries at the forthcoming G-20 summit in Mexico. This is an idea that India and Brazil had also suggested at the G-20 Finance Ministers' meeting.
The bank would “downgrade the risk of ups and downs in other international currencies”, Chinese Foreign Ministry official Li Kexin said. China expects a broad consensus to emerge at the BRICS Ministerial meeting on Wednesday, a day before the summit proper. Mr. Li said he was hoping that India — as chairperson of BRICS till the next summit and draft-country for the action plan — would be able to draw up a realistic timetable of follow up meetings to make it a reality.
Explaining the need for government money in the initial capitalisation of the Bank, BRICS specialist at the influential Chinese Academy of Social Sciences Li Zhongmin said this would ensure good credit ratings from Moody's and Standard & Poor's which in turn would enable the bank to raise finance at lower interest rates.
“BRICS countries have been left with few other options. One avenue is utilisation of foreign exchange reserves, which all BRICS countries have in ample quantity, for infrastructure development in BRICS and other developing countries. But routing foreign exchange reserves through multilateral financial institutions will not give these countries enough say over utilisation because their voting power still remains small.”
Setting up a “BRICS construction bank” would play a crucial role of providing finance for key projects among the five countries, said Liu Youfa, a scholar at the official China Institute for International Studies (CIIS).
“This can provide the badly-needed finance for key projects among the BRICS countries,” he said. “This would also serve as a platform to find ways to help reform existing international institutions, like the IMF and the World Bank, which are not working very effectively at the moment.”
“The creation of such a bank can also serve as a testing ground as BRICS countries search for a way to find a currency that can be used alongside the dollar,” he added. But Liu Zongyi, a scholar at the Shanghai Institutes for International Studies, said the BRICS Bank idea, which reportedly came from India, was primarily aimed at serving Indian interests.
“The Indians are proposing a BRICS bank because their country doesn't have adequate funds for development,” he said in an article in the official Global Times due to be published on Wednesday.
“India needs foreign investments, but is reluctant to be more open to countries like China. If a BRICS bank can be established, India will be able to use the funds to develop its infrastructure and new industries.”